Financial Services Update

August 13, 2010

Authored by: Matt Jessee

Treasury-HUD “Conference on the Future of Housing Finance”

Next Tuesday, August 17th, the U.S. Departments of Treasury and Housing & Urban Development (HUD) will co-host the “Conference on the Future of Housing Finance,” an open press, day long event where Treasury Secretary Tim Geithner and HUD Secretary Shaun Donovan will moderate panel discussions which will include the following panelists: Barbara J. Desoer, President of Bank of America Home Loans; Ingrid Gould Ellen, Professor of Urban Planning and Public Policy at New York University; · Bill Gross, Co-founder and Co-chief Investment Officer of PIMCO; Mike Heid, Co-president of Wells Fargo Home Mortgage; S.A. Ibrahim, Chief Executive Officer of Radian Group Inc.; Marc H. Morial, President and Chief Executive Officer of the National Urban League; Alex Pollock, Resident Fellow at the American Enterprise Institute; Lewis Ranieri, Chairman of Ranieri and Company, Inc.; Ellen Seidman, Ellen Seidman, Executive Vice President ShoreBank Corporation; Michael A. Stegman, Director of Policy and Housing at the John D. and Catherine T. MacArthur Foundation; Susan Wachter, Professor at the University of Pennsylvania’s Wharton School; Mark Zandi, Chief Economist of Moody’s Analytics. Sources indicate the topic of eliminating GSEs could emerge as one of the most contentious points of discussion.

July Retail Sales and Consumer Price Index Reports Released

On Friday, the Department of Commerce released its July retail sales report showing an increase of 0.4% during the month. This positive report follows Mary and June sales figures showing consecutive declines. The Department of Labor also issued its July consumer prices report for July on Friday showing the seasonally adjusted Consumer Price Index rose 0.3 percent. The June report also showed prices fell 0.1 percent, and therefore such positive July figures could ease concerns about deflation.  

Federal Regulators Express Concerns Over Provisions of Dodd-Frank

On Tuesday, federal banking regulators met for the first time publicly following passage of the Dodd-Frank bill. Several of the regulators expressed concerns about provisions in the bill, including FDIC Chairman Sheila Bair. The regulators’ concerns specifically deal with the bill’s provision restricting the use of private credit ratings which has forced the federal agencies to delay efforts to create new capital standards for community banks. As mandated by the Dodd-Frank Act, regulators started the process to eliminate the use of credit-ratings as a way to gauge banks’ capital levels. Regulators previously expected to be able to use certain credit ratings to help determine how much capital banks would need to hold as a cushion against losses. The Dodd-Frank Act prohibits credit ratings from being used for measuring risk, forcing regulators to come up with alternative measures. The challenge for regulators will be to find a practical alternative since most community banks do not have large scale internal risk-measurement models which would be the likely alternative. 

Administration Increases Funding for Foreclosure Prevention

On Wednesday, the Treasury Department announced it was adding $2 billion to its “Hardest Hit Fund” and $1 billion to the HUD “Bridge Loan” program. The “Hardest Hit Fund” funding goes to state housing finance agencies to create local aid programs. The HUD program funds up to $50,000 in interest free loans to eligible borrowers to assist with mortgage payments for up to 24 months. The Hardest Hit Fund will draw from the $45.6 billion set aside for housing programs in the TARP Program. Initially, the Fund gave $1.5 billion to the five “hardest-hit” states: Arizona, California, Florida, Michigan and Nevada. The second round in March of $600 million went to North Carolina, Ohio, Oregon, Rhode Island and South Carolina. The expanded list of states now includes Alabama, Illinois, Kentucky, Mississippi and New Jersey, as well as the District of Columbia.

President Signs Manufacturing Enhancement Act

On Wednesday, President Obama signed the Manufacturing Enhancement Act of 2010 which amends the Harmonized Tariff Schedule by suspending, increasing, and reducing duties through December 31, 2012, for certain chemicals and other products. The Act also amends the Corporate Estimated Tax Shift Act of 2009 by increasing the estimated tax payments of corporations with $1 billion or more in assets in the third quarter of 2014 by 0.75%. 

FDIC Creates New Offices for Large Banks and Consumer Protection
On Tuesday, the FDIC announced the creation of a new Office of Complex Financial Institutions (CFI) and Division of Depositor and Consumer Protection (DCP) as part of its reorganization under the Dodd-Frank Wall Street Reform and Consumer Protection Act. The CFI will regulate bank holding companies with more than $100 billion in assets as well as non-bank financial companies designated as “systemically important” by the new Financial Stability Oversight Council. CFI will also be responsible for carrying out the FDIC’s new authority to implement liquidations of failed bank holding companies and non-bank financial companies. The DCP will be charged with ensuring that banks comply with the Act’s new consumer protection and lending statutes for banks with $10 billion or less in assets.